DMCL continues PCAOB audit inspection results with lower deficiency rates

TORONTO, October 6, 2024 – Vancouver public accounting firm Dale Matheson Carr Hilton LaBonte LLP, otherwise known as DMCL, is maintaining its recent improvement in audit inspection results. The Public Company Accounting Oversight Board in the United States inspected three DMCL audits in 2023 and, according to its inspection report, identified deficiencies pertaining to one company. The firm’s 33% deficiency rate matches its 2020 inspection report — the lowest rate for the firm since 2005. 

Under the Sarbanes-Oxley Act, registered firms outside the US are subject to PCAOB inspections in the same manner as US firms. Since the inception of the PCAOB's international inspection program in 2004, the PCAOB has conducted inspections of one or more registered firms located in more than 50 non-U.S. jurisdictions, including Canada. In 2023, DMCL was the principal auditor for 11 public companies (“issuer audit clients”) under the jurisdiction of the US audit watchdog. 

Long-lived asset deficiencies in audit of materials company

The PCAOB found that DMCL had one audit engagement with multiple deficiencies pertaining to long-lived assets. “The firm’s approach for substantively testing the issuer’s impairment analyses for certain long-lived assets was to develop independent expectations. 

“The firm did not sufficiently take into account the requirements of certain elements of the applicable financial framework because it did not take into account certain factors relevant to the estimates in developing its expectations.” 

The PCAOB also flagged deficiencies in audit communications, which have been a concern of the US audit watchdog in recent years. There were no audits with an incorrect opinion on the financial statements and/or internal controls over financial reporting. According to the US Center for Audit Quality, such instances are exceedingly rare, typically less than five per cent annually. 

Finally, the PCAOB noted that instances of potential non-compliance with rules related to maintaining independence. Specifically, “in three audits reviewed, we identified one instance for one issuer,” related to the audit client’s agreement to indemnify its auditor with respect to certain liabilities, which the PCAOB states is inconsistent with the general standard of independence. 

In its response to the inspection report, Dale Matheson Carr Hilton LaBonte LLP stated that it supports the work of the PCAOB, and has “completed additional procedures in accordance to” relevant accounting standards. 

Audit regulators scrutinize BC accounting firms

The PCAOB censured DMCL and fined the firm US$50,000 in 2021 for violating PCAOB rules and standards in connection with two issuer audits. In 2023, the Canadian Public Accountability Board also sanctioned the firm and barred it from accepting “new elevated and high-risk reporting issuers.” 

The sanctions against DMCL were part of a wave of sanctions against auditors in British Columbia by regulators on both sides of the border, which garnered the attention of business journalists in BC, who were critical of accounting regulation in the province. 

Colin Ellis is a contributing editor to Canadian Accountant.